Monthly Portfolio Commentary -Fixed Income- RETAIL-new design · Aditya Birla Sun Life Mutual Fund...
3
1 Mutual Fund investments are subject to market risks, read all scheme related documents carefully This document is strictly confidential and meant for private circulation only and is not an off er to sell or a solicitation to buy any mutual fund units/ securities. Data as on July 31, 2019. Source: Bloomberg, ABSL AMC Internal Research Last Update Current Update CPI WPI IIP Trade Deficit Fiscal Deficit GDP Growth Rate Exchange Rate Rs vs $ Current Account Deficit (CAD) Macro Economic Parameters Y Key Rates & Market ields June-19 July-19 Policy Rates (In %) Repo Rate Reverse Repo Rate CRR Overnight Rates TREPS Short Term Debt 3 months CP 6 Months CP 3 Months CD 6 months CD 91 days T-Bill 182 days T-Bill 364 days T-Bill Long Term Debt 3 yr G-Sec 5 Yr G-Sec 10 Yr G-Sec Corporate Bond Yields (AAA) 6 months 1 year 3 year 69.02 3.05% 2.45% 3.4% 3.52% $15.36bn 2.5% of GDP (Q3 FY19) 6.60% (Q3 FY19) 3.15% 2.02% 3.1% 3.4% 68.86 $15.28bn 0.7% of GDP (Q4 FY19) 5.80% (Q4 FY19) 6.51 6.77 6.88 7.08 7.45 7.75 5.75 5.50 4.00 7.10 7.70 6.35 6.88 5.98 6.10 6.13 5.70 5.40 5.15 4.00 5.73 6.30 7.15 5.85 6.33 5.66 5.81 5.91 6.21 6.30 6.37 6.75 7.10 7.35 MONTHLY FIXED INCOME UPDATE & COMMENTARY ON FOCUS FUNDS - AUGUST 2019 Market Update & Outlook MUTUAL FUND Aditya Birla Sun Life Mutual Fund 3.15 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 Consumer Price Infla�on The RBI slash repo rate in the August moneta policy by 35 bps to 5.40% higher than the market expectations of 25bp cut. GDP growth estimate for FY20 is revised downwards from 7.0% to 6.9% and 5.8-6.6% for H1FY20 and 7.3-7.5% for H2FY20, for Q1FY21 is projected at 7.4%. RBI cited various high frequency indicators suggesting weakening of both domestic and external demand conditions, escalating trade tensions, sluggish private consumption & investment activity as key drags on growth. CPI inflation is projected at 3.1% for Q2FY20 and 3.5-3.7% for H2FY20, for Q1FY21 is projected at 3.6%, largely unchanged from June policy. In order to ease liquidity, RBI decided to raise bank’s exposure limit to a single NBFC to 20% of Tier-I capital of the bank. We believe that persistent low inflation and subdued global growth provide space for more liquidity easing, without creating macro risks The RBI is maintaining its accommodative stance to Growth while remaining consistent with the inflation mandate. Impact of past rate cuts are being gradually transmitted to the real economy. Long term sovereign bonds have noticed a significant rally as a result of past rate cuts and we expect corporate bonds to catch up and thus 1-3 year AAA corporate bonds are looking ve attractive on risk reward basis. Investor with short term horizon should consider Ultra Short-Term space (ABSL Money Manager Fund, ABSL Savings Fund & ABSL Low Duration Fund). Investor with longer horizon should consider ABSL Corporate Bond Fund and ABSL Banking & PSU Fund. Existing investors of credit funds are advised to STAY PUT as the resolution to the credit issues are turning constructive and in sight.
Transcript of Monthly Portfolio Commentary -Fixed Income- RETAIL-new design · Aditya Birla Sun Life Mutual Fund...
1Mutual Fund investments are subject to market risks, read all scheme related documents carefully
MONTHLY FIXED INCOME UPDATE & COMMENTARY ON FOCUS FUNDS - SEPTEMBER 2018
This document is strictly confidential and meant for private circulation only and is not an offer to sell or a solicitation to buy any mutual fund units/ securities.
Data as on July 31, 2019. Source: Bloomberg, ABSL AMC Internal Research
Last
UpdateCurrentUpdate
CPIWPI
IIPTrade Deficit
Fiscal Deficit
GDP Growth Rate
Exchange Rate Rs vs $
Current Account Deficit (CAD)
Macro Economic Parameters
YKey Rates & Market ields June-19 July-19
Policy Rates (In %)Repo Rate Reverse Repo Rate CRR Overnight RatesTREPSShort Term Debt3 months CP
6 Months CP
3 Months CD
6 months CD
91 days T-Bill
182 days T-Bill
364 days T-Bill Long Term Debt3 yr G-Sec
5 Yr G-Sec
10 Yr G-Sec Corporate Bond Yields (AAA) 6 months
1 year
3 year
69.02
3.05%2.45%
3.4%
3.52%
$15.36bn
2.5% of GDP(Q3 FY19)
6.60%(Q3 FY19)
3.15%2.02%
3.1%
3.4%
68.86
$15.28bn
0.7% of GDP(Q4 FY19)
5.80%(Q4 FY19)
6.51
6.77
6.88
7.08
7.45
7.75
5.755.504.00
7.10
7.70
6.35
6.88
5.98
6.10
6.13
5.70
5.405.154.00
5.73
6.30
7.15
5.85
6.33
5.66
5.81
5.91
6.21
6.30
6.37
6.75
7.10
7.35
MONTHLY FIXED INCOME UPDATE & COMMENTARY ON FOCUS FUNDS - AUGUST 2019
Market Update & Outlook
MUTUAL FUNDAditya Birla Sun Life Mutual Fund
3.15
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00Consumer Price Infla�on
The RBI slash repo rate in the August moneta� policy by 35 bps to 5.40% higher than the market expectations of 25bp cut.
GDP growth estimate for FY20 is revised downwards from 7.0% to 6.9% and 5.8-6.6% for H1FY20 and 7.3-7.5% for H2FY20, for Q1FY21 is projected at 7.4%.
RBI cited various high frequency indicators suggesting weakening of both domestic and external demand conditions, escalating trade tensions, sluggish private consumption & investment activity as key drags on growth.
CPI inflation is projected at 3.1% for Q2FY20 and 3.5-3.7% for H2FY20, for Q1FY21 is projected at 3.6%, largely unchanged from June policy.
In order to ease liquidity, RBI decided to raise bank’s exposure limit to a single NBFC to 20% of Tier-I capital of the bank.
We believe that persistent low inflation and subdued global growth provide space for more liquidity easing, without creating macro risks
The RBI is maintaining its accommodative stance to Growth while remaining consistent with the inflation mandate. Impact of past rate cuts are being gradually transmitted to the real economy.
Long term sovereign bonds have noticed a significant rally as a result of past rate cuts and we expect corporate bonds to catch up and thus 1-3 year AAA corporate bonds are looking ve� attractive on risk reward basis.
Investor with short term horizon should consider Ultra Short-Term space (ABSL Money Manager Fund, ABSL Savings Fund & ABSL Low Duration Fund). Investor with longer horizon should consider ABSL Corporate Bond Fund and ABSL Banking & PSU Fund. Existing investors of credit funds are advised to STAY PUT as the resolution to the credit issues are turning constructive and in sight.
7.257.89
9.22
6.00
7.00
8.00
9.00
10.00
11.00
12.00Corporate Bond Yields Snapshot
BCOPAAA3 BCOPAA3 BCOPA3
2
This document is strictly confidential and meant for private circulation only and is not an offer to sell or a solicitation to buy any mutual fund units/ securities.
Portfolio Action & Strategy
Positioning: The fund is a short term accrual fund investing predominantly in high quality corporate
bond oriented portfolio. The fund is positioned in the Short Duration catego� and maintains the
modified duration in the range of 1-3 years.
Positioning: An aggressive short to medium term fund seeking to generate consistently higher returns from accrual strategy within the credit space & opportunistically
generate capital gains by identification of mispriced credit opportunities. The fund maintains modified duration in the range of 1-4 years and is suitable for investment
horizon of 2 years and above.
ABSL Short Term Opportunities Fund
Portfolio Update and Strategy Going Forward
ABSL Credit Risk Fund
ABSL Medium Term Plan
Portfolio Update and Strategy Going Forward
Mutual Fund investments are subject to market risks, read all scheme related documents carefully
Data as on July 31, 2019. Source: Bloomberg, ABSL AMC Internal Research
The fund has a good quality accrual portfolio. The duration is actively managed to generate superior returns.
RBI has cut the repo rate in last 4 policies. Short end rates are still at elevated levels and We continue to like 1-3yr AAA PSU corporate bonds.
Global growth outlook remains benign with the protracted US-China trade tensions. Domestic growth and inflation outlook is also benign. These factors remain supportive for bonds. However, crude uptick and fiscal slippage are the risks.
The modified duration of the fund is 2.10 years. The portfolio closed the month with a YTM of 8.72%.
We have been managing this fund with the dual objective of building a good quality accrual portfolio along with managing the duration actively.
In the past, several interesting opportunities have presented themselves in the credit markets and we have benefited by adding some credit structures in our funds.
We have been careful in adding adequate security layers, in the form of collaterals and covenants, while underwriting trades.
Long term investors should continue to invest in the fund. We are currently running the duration at 2.74 years.
Positioning: A high yielding accrual fund that focuses on generating interest income from high yielding corporate bonds. The fund is low on duration risk (range of 1-3 years) but relatively high on credit risk, suitable for an investment horizon of 2 years and above.
Portfolio Update and Strategy Going Forward
The fund has a diversified accrual portfolio with adequate liquidity.
In the past, several interesting opportunities have presented themselves in the credit markets and we have benefited by adding some credit structures in our funds.
We have been careful in adding adequate security layers, in the form of collaterals and covenants, while underwriting trades.
Long term investors should continue to invest in the fund. The Modified Duration of the fund is 1.62 years.
MONTHLY FIXED INCOME UPDATE & COMMENTARY ON FOCUS FUNDS - SEPTEMBER 2018
MUTUAL FUNDAditya Birla Sun Life Mutual Fund
MONTHLY FIXED INCOME UPDATE & COMMENTARY ON FOCUS FUNDS - AUGUST 2019
ABSL Low Duration Fund
Portfolio Update and Strategy Going Forward
The fund portfolio has a quality credit profile with the exposure to AAA and equivalent papers being > 80%. The current modified duration of the fund is 0.81 years & YTM is 7.50%.
Short end of the corporate bond curve has come down in the last few weeks. There is still value le� in the short end with 2yr AAA bonds about 160 bps above Repo rate. The Low Duration fund portfolio with its duration range (6m-1y) is perfectly placed to capture the ve� sharp roll overs. The fund offers an attractive yield and a minimal duration risk.
A significant part of the portfolio is self-liquidating in nature which gets re-priced regularly. Hence, the fund is well positioned to benefit from the current high rates & ensuing rally of short term bonds.
Investors with more than 3 month investment horizon should invest in this fund in order to reduce reinvestment risk.
Positioning: A unique proposition of safety & liquidity coupled with the benefit of money market competitive returns. This fund serves as efficient alternative to savings
account for parking surplus funds. Positioned in the Low Duration catego�, the fund seeks to maintain the modified duration in the range of 6-12 months.
6.37
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.5010 year G-Sec movement
3Mutual Fund investments are subject to market risks, read all scheme related documents carefully
This document is strictly confidential and meant for private circulation only and is not an offer to sell or a solicitation to buy any mutual fund units/ securities. Data as on July 31, 2019. Source: Bloomberg, ABSL AMC Internal Research
MONTHLY FIXED INCOME UPDATE & COMMENTARY ON FOCUS FUNDS - SEPTEMBER 2018
MUTUAL FUNDAditya Birla Sun Life Mutual Fund
MONTHLY FIXED INCOME UPDATE & COMMENTARY ON FOCUS FUNDS - AUGUST 2019
Positioning: An ‘absolute return oriented fund’ investing in a portfolio of corporate & sovereign bonds and money market instruments with an endeavor to generate
healthy returns over a period of 3 years.
ABSL Dynamic Bond Fund
Portfolio Update and Strategy Going Forward
Being a ‘true to label’ Dynamic Bond Fund, we have adopted a mix of accrual and duration strategy.
The YTM of the fund is 11.89% and duration of the fund is 4.23.
This fund has the advantage of being able to transition from a pure duration based strategy (as seen till last year) to an accrual based strategy vis-à-vis its competitive peer space or a mix of both based on evolving macro-economic conditions.
Just like its label of being a true blue Dynamic fund we have adopted dynamic portfolio strategies during the year. In first of 2018-19 we had a cautious approach as higher crude and pressure on INR warranted this approach, however we took duration much higher as we anticipated crude falling in 3rd quarter. Going into budget we however reduced duration once again as we anticipated fiscal issues.
In March however we have increased our exposure to 10y corporate bond as the absolute value of 10y AAA PSU in 8.3-8.5% approximately on a repo rate of 6% repo rate (we expected a rate cut in April) and good liquidity is an attractive value proposition. Post March we have seen rate cut from RBI to 6% as expected.
We have also increased the duration of the fund but within reasonable range. In the context of slow global and local growth and with local inflation in manageable range we expect higher duration to be a better risk reward proposition. A stable Govt post-election has le� the market poised to take advantage of and hence we expect further decline in yields. The fund is positioned to react swi�ly to upcoming events.
